Auditor independence — one firm, one client, ONE role

auditor_independence.cell

// ============================================================================
// AUDITOR INDEPENDENCE — one firm, one client, ONE role
// ============================================================================
//
// In 2000, Arthur Andersen billed Enron $25 million for the audit — and
// $27 million for consulting. The firm certifying the books had a bigger
// business interest in pleasing management than in challenging it. When
// Enron collapsed, Andersen's partners were found shredding audit
// workpapers; the firm itself dissolved, taking 85,000 jobs with it.
// Sarbanes-Oxley §201 answered by making the dual role itself illegal:
// a registered public accounting firm may not provide most consulting
// services to an audit client. Not "disclose it" — may not hold both.
//
// Here the prohibition is arithmetic. A firm/client pair can hold at
// most ONE engagement. Signing the audit writes 1; selling consulting
// to the same client tries to write 2 — and the engagement ledger
// refuses. The conflict isn't reviewed by an ethics board after the
// fact; it is a value the books cannot hold. The audit itself runs a
// machine where `opinion_issued` is terminal: once signed, an opinion
// cannot be quietly recalled and re-negotiated.
// ============================================================================

cell EngagementLedger {
    face {
        signal sign_audit(firm: String, client: String) -> Map
        signal sell_consulting(firm: String, client: String) -> Map
        signal do_fieldwork(firm: String, client: String) -> Map
        signal issue_opinion(firm: String, client: String) -> Map
        signal engagement_load(firm: String, client: String) -> Int
    }

    memory {
        // firm:client -> engagements held. The Andersen position
        // (audit + consulting, same client) is the unrepresentable 2.
        engagements: Map<String, Int> [persistent, consistent]
        invariant engagements >= 0 && engagements <= 1
    }

    // an audit engagement's life; opinion_issued is TERMINAL
    state audit {
        initial: proposed
        proposed -> engaged
        engaged -> fieldwork
        fieldwork -> opinion_issued
    }

    on sign_audit(firm: String, client: String) {
        let k = "{firm}:{client}"
        let w = try { engagements.set(k, (engagements.get(k) ?? 0) + 1) }
        if w.error != () {
            return map("ok", false, "reason",
                "SOX 201: {firm} already holds an engagement at {client}")
        }
        let r = try { transition(k, "engaged") }
        if r.error != () { return map("ok", false, "reason", "{r.error}") }
        return map("ok", true, "audit", k)
    }

    on sell_consulting(firm: String, client: String) {
        // SAME ledger, SAME invariant: the second hat does not fit
        let k = "{firm}:{client}"
        let w = try { engagements.set(k, (engagements.get(k) ?? 0) + 1) }
        if w.error != () {
            return map("ok", false, "reason",
                "SOX 201: {firm} cannot consult for an audit client ({client})")
        }
        return map("ok", true, "consulting", k)
    }

    on do_fieldwork(firm: String, client: String) {
        let r = try { transition("{firm}:{client}", "fieldwork") }
        if r.error != () { return map("ok", false, "reason", "{r.error}") }
        return map("ok", true, "state", "fieldwork")
    }

    on issue_opinion(firm: String, client: String) {
        let r = try { transition("{firm}:{client}", "opinion_issued") }
        if r.error != () { return map("ok", false, "reason", "{r.error}") }
        return map("ok", true, "state", "opinion_issued")
    }

    on engagement_load(firm: String, client: String) {
        return engagements.get("{firm}:{client}") ?? 0
    }
}

cell test IndependenceTests {
    rules {
        // Andersen signs the Enron audit — one engagement, lawful
        assert sign_audit("andersen", "enron").ok == true
        assert engagement_load("andersen", "enron") == 1

        // THE $27M TEMPTATION: consulting for the same client. The
        // ledger cannot hold the 2 — refused at the write.
        assert sell_consulting("andersen", "enron").ok == false
        assert_fails engagements.set("andersen:enron", 2)
        assert engagement_load("andersen", "enron") == 1

        // and symmetrically: a consulting-first firm cannot take the audit
        assert sell_consulting("mckinsey", "enron").ok == true
        assert sign_audit("mckinsey", "enron").ok == false

        // different client, no conflict — independence is per-pair
        assert sell_consulting("andersen", "dynegy").ok == true

        // the audit machine: no opinion without fieldwork
        assert issue_opinion("andersen", "enron").ok == false
        assert_fails transition("andersen:enron", "opinion_issued")
        assert do_fieldwork("andersen", "enron").ok == true
        assert issue_opinion("andersen", "enron").ok == true

        // a signed opinion is history — no recall, no re-negotiation
        assert_fails transition("andersen:enron", "fieldwork")
        assert_fails transition("andersen:enron", "proposed")
    }
}